'The Lord Chancellor considers that this is carrying stage nudity too far. His Lordship is not prepared to allow three full-figured girls out of four posed for the benefit of the audience in this manner. The Lord Chancellor desires me to warn you that unless more reasonableness is shown in the inclusion of nudity in your programme he will have no alternative to prohibiting it altogether." Thus the official censors communicated their displeasure, at the height of the second world war, to the owners of the Windmill Theatre, whose activities are immortalised in the forthcoming film Mrs Henderson Presents.

From 1932 to 1964, a small theatre near London's Piccadilly Circus presented a mixture of songs, dancing, sketches and standup comedy. But the main attractions for the mostly male patrons were the famous "Revudebelle" showgirls, who posed nude in subdued lighting. The Windmill was the fruit of an unlikely collaboration between Laura Henderson, the wealthy and eccentric widow of a jute merchant, and Vivian Van Damm, a cinema manager whom she hired to run the theatre after she bought it in 1931, partly to give employment to variety artists thrown out of work by the arrival of the "talkies". Soon the Windmill was producing revue shows five times a day, with a new programme every six weeks, and introduced the famous nude girls in stationary artistic poses "representing some famous painting or piece of sculpture". It was some time before the Lord Chamberlain's Office, responsible for stage censorship, realised what was going on. By the late 1930s, Henderson and Van Damm had managed to carve out a zone of tolerance denied to other theatres. In an uneasy compromise, the nude girls were permitted to remain but were not allowed to move a muscle.

The pair made an unlikely partnership. Van Damm - known as VD - wrote and produced all the shows, while Henderson provided the money. Van Damm, who came from a middle-class London family of Dutch Jewish origin, was a showman who smoked Havana cigars. He left school at 14 to work in a garage, and later abandoned the motor trade to manage West End cinemas. In his 1952 autobiography he described Henderson as "a great strain on one's nerves, patience and tact". The tiny white-haired lady would sit perched on a footstool in her box, wearing a £5,000 diamond tiara and cuddling her favourite dachshund. Backstage she would argue with Van Damm about the show, then drop into the dressing rooms for "heart-to-heart" chats with the chorus girls, which they dreaded. Sometimes they would turn out the lights and pretend not to be there. "Mr Van Damm, where is everybody?" she would ask.

Henderson had lost her only son in the first world war, and the Windmill company became her family. She wrote affectionate notes to Van Damm, addressing him as "My Dear Bop", and left him the theatre in her will when she died in 1944, aged 80. Like the costumes worn by the showgirls, the Windmill's finances were precarious. Without Henderson's generous subsidies, the Windmill would have closed, though by the early years of the war even she found it hard losing £300 or £400 a week. Van Damm loyally humoured her whims, which included turning up to the theatre in disguise and auditioning dressed as a polar bear.

Peggy Martin was 17 when she came to the Windmill in 1942 from panto in Bradford. "There were six of us going for an audition with Van Damm. We did high kicks and a few steps and a bit of everything, and sang a song. He asked us to go up into the circle and see the show, and if we felt all right about what we saw, we could sign a contract. When I saw the nudes I thought, 'What will my mother say?' But we liked the show, we all wanted to be in London, and the money was good, so we all came back and signed for five weeks. And from then on I was a Windmill girl."

Peggy stayed until 1948, returning for another three years at the theatre in the early 1950s. "I just settled in. I loved it. Van Damm was such a wonderful boss to us all." She graduated from the chorus line to become a "soubrette" feeding lines to comics such as Jimmy Edwards and Alfred Marks. "Every week Van Damm put up a casting list and suddenly I saw POSE - Peggy. I thought, oh my God. The big day came and I had a wig on, a Grecian wig, and I sat in a bowl at the back of the stage. I was very, very nervous. After that I was nude in practically every show. I loved my job. You would do the pose in your clothes when VD was mapping out the show, and the dress rehearsal was the first time you would get up there starkers."

Peggy, like every ex-Windmill performer, remembers it as being like a boarding school with a strict headmaster. "The boys had their dressing room upstairs and we were in the basement. They were not allowed to come downstairs, not even to use the telephone if theirs wasn't working." Van Damm disapproved of romance between his boys and girls, some of whom were as young as 14. Alcohol was banned, lateness was punished by the sack and there were fines for swearing. When a showgirl ended her nude pose and came offstage, George the stagehand would pass her a dressing gown, carefully looking the other way. "We were all respectable girls," Peggy insists. She recalls Mrs Henderson as "a funny old lady - she was very tiny and once she sat in her box with Queen Wilhelmina of Holland. Once she came into the dressing room and brought us a bouquet of flowers and they were all dead. And we had to say, 'Thank you very much, Mrs Henderson.' Van Damm used to get very irritable with her."

The only person allowed to bend the rules occasionally was Van Damm himself, who was not averse to using the casting couch. "It didn't disrupt the show. I think Mrs Van Damm knew what was going on, and his daughters knew what was going on, it was obvious," Peggy recalls. Ronnie Bridges, a lyricist and musical jack-of-all-trades who joined the Windmill just after the war, says Van Damm "went through the girls a bit. It's common knowledge. He did take advantage of his position." Johnny Burslem, now a sprightly 82-year-old who still runs a small dancing school in Essex with his wife, was just 17 when he joined the Windmill in 1940. He volunteered to deliver a note to a chorus girl in one of the dressing rooms. "I opened the door. Van Damm was on top of her on the dressing table. So I said excuse me, and I fled. I thought I was going to be sacked, but I never was." Like every other Windmill artiste I spoke to, he has nothing but praise for Van Damm's kindness and generosity as the man in charge of "a nunnery gone potty". He remembers Laura Henderson as "a lovely soul". "She would say with a lovely smile, 'I've heard about you,' and ask me how I was. She was like a fairy godmother who came from outer space."

By the end of the war, after Henderson's death, thanks to Van Damm's flair for public relations, the myth of the theatre "that never closed" had taken root. Pictures of plucky Windmill girls in tin hats on fire-watching duty and stories of showgirls giving V-signs to German bombers filled the newspapers, while thousands of servicemen packed the theatre for free performances as London celebrated the end of the war. When the censors tried to tighten up after the anything-goes atmosphere of wartime, they could not realistically threaten to close the theatre down. The Lord Chamberlain's office sent their senior official - the appropriately named George Titman - to inspect each new Windmill show. Titman, a conscientious royal servant, would report every six weeks on how he had persuaded Van Damm to mend his ways, adding extra layers of gauze to hide the rampant nipples revealed by "accidental" costume failures.

In the long run it was not the censorship that did for the Windmill, but the free-for-all that succeeded it. By the late 1950s, Soho was full of strip clubs over which the Lord Chamberlain had no control, and this source of competition eventually proved fatal. The theatre lingered on into the 1960s, as Van Damm fought a losing battle against asthma and Parkinson's Disease. Not long after his death, his daughter Sheila finally accepted the inevitable and sold the theatre in 1964. Today it is a lapdancing club.